Poland's confused energy strategy reportedly forced out PGE chief

By bne IntelliNews December 11, 2013

Tim Gosling in Prague -

Illustrating the strain at the heart of the Polish government's confused energy strategy, unnamed sources have claimed in the media that Krzysztof Kilian, former head of PGE and close friend to the prime minister, quit his role as the head of Poland's biggest utility in November because the company was forced back into the PLN11.6bn expansion of the Opole power plant.

Kilian, who is now reported to be scouting for a role outside his home country, left his job due to opposition to the addition of two units at the coal-fired plant, claim two sources, according to Reuters. When he resigned last month, PGE said it was because two of his boardroom allies had left the company.

"Kilian was all against it. Now, after his resignation, the management board is in favour of the plan and it seems that nothing will stop the project now," one of the sources was reported as saying.

PGE will issue a notice to proceed to general contractors Rafako, Polimex- Mostostal and Mostostal Warszawa on January 31, it was reported on December 9.

The project exemplifies the government's confused energy strategy when PGE announced earlier this year it would not go ahead, saying that it would not be possible to make Opole profitable due to low prices on the power market. But Prime Minister Donald Tusk personally intervened in June, insisting the project is a flagship for the country, and pushing PGE back into it with vague promises of help with financing.

The two sources say Kilian's view continued to contradict the company's revised public stance, and that he had still sought to block it even after PGE had committed to go ahead. Kilian declined to comment when called by Reuters, but the reports suggest the former CEO still sees the government's energy strategy as confused.

Too many irons

Simply put, Warsaw looks to be struggling to keep numerous irons in the fire. Kilian was anything but reticent in criticizing Warsaw's drive to push the country's utilities into huge investments before PGE was forced to back Opole, and the pressure is not easing because Poland faces a capacity shortfall.

Polish generation capacity could sit 1.1 gigawatts (GW) below its needs by 2017, the economy ministry said in July. Power regulator URE said in October that the country needs measures to encourage utilities to build new plants and prevent them closing existing ones if it is to avoid blackouts.

Utilities, miners and oil refiners have also been bounced into the hunt for shale gas as foreign investors have lost their enthusiasm amidst disappointing test drilling results. The government has reiterated recently that shale gas remains the country's "top priority," but commercial flows have yet to be found.

With PGE also facing government pressure to build the country's first nuclear power station, Kilian complained in October 2012 that the country could not pursue both the power and shale gas strategies. Tusk immediately denied the government faced any such choice.

However, by June, the PM admitted that the nuclear project - originally due to consume PLN40bn for the construction of two 3GW plants, with the first to go online by 2024 - may have to wait. "I'm not ruling out nuclear in our energy mix, but later than planned," Tusk said. "This is primarily due to the expected growth of natural gas as an energy source, including domestic shale gas."

The confusion is little comfort for minority investors in Poland's state-controlled companies. While they had earlier benefitted from Warsaw's demands for large dividends in a bid to help with fiscal consolidation, the focus has since moved to investment, as the government pushes to support economic recovery and develop the country's energy independence. Recovery of the beleaguered construction sector is seen as another priority.

Under Killian, PGE was also at the forefront of investor complaints over the government's long delay on a new support strategy for renewable energy production. PGE threatened in early October to step away from plans to invest PLN4.1bn in building 1GW of new co-generation blocks unless the state provides subsidies for burning coal and biomass together.

Asked about Kilian's stance on Opole, PGE said it has been working for months on ways to reduce the risk of the investment, which it said would be based on solutions implemented in other European countries, such as Britain and Spain. Earlier this year PGE and other Polish power companies urged the government to adopt a system to subsidise producers to keep power plants operating when prices are low.

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